Fears that China’s economy is at serious risk of overheating deepened on
Thursday after official data for the first three months of this year showed
the economy grew by 11.9pc year-on-year.

Analysts said the faster-than-expectedgrowth figuresstrengthened the case for continued policy tightening in China which is facing inflationary pressure and a potentially dangerous boom in residential property prices.

“The economy is a little bit too hot. I think policy needs to be tightened more aggressively to prevent overheating," said Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong.

"Residential investment was a big driver of growth in the first quarter. Running an economy on residential investment is not sustainable," he added.

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In recent months a growing number of economists have been calling for interest-rate rises to keep price rises from running out to control, however analysts said the expected rises could now be postponed until June.

The softer-than-expected inflation data may, however, refocus attention on the value of the Chinese currency, making it harder forBeijing to resist calls from the USand others to allow the Renminbi to strengthen against the dollar later this year.

Chinese policymakers have already moved to tighten monetary policy after a massive splurge of lending in 2009, moving twice already this year to limit the amount of money banks can lend and raising the bar on loans to non-viable infrastructure projects.

Despite fears of overheating, China's cabinet, the State Council, said that after reviewing the data it would be sticking to the "appropriately loose" monetary fiscal policy first adopted at the height of the global financial crisis in late 2008.

However the cabinet omitted a stock phrase used in its assessments last year that the economic recovery was not yet on a “solid footing”, prompting speculation that they would countenance further tightening in the months to come.

“In 2009, China was among the first countries to recover. This year, the economy's momentum has increased. We are off to a good start," said Li Xiaochao, the statistics office spokesman as he announced the data.

“The global economy is recovering slowly and it is not yet balanced. Commodity prices are high and there are sovereign debt worries in some countries. So there are many uncertainties.”

The surge in economic expansion was supported by a 19.6pc rise in industrial output over a year earlier and a nearly 26pc rise in investment in factories and other fixed assets.

China has targeted 8pc GDP growth for 2010, although the consensus of independent economists is that it will grow by 10pc.

“We think in the absence of a dramatic fall in external demand, it is critical for the government to tighten policy more decisively than they have been doing in order to prevent overheating," concluded Goldman Sachs economists Yu Son and Helen Qiao said in a note to clients.